ESG investment in form of ETFs, Funds and companies branding themselves as a ESG company is a hot topic now. We can see that many ESG funds and ETFs have seen their value increase more than general indexes. ESG stands for Environmental, Social and Governance, check Investopedias more detailed explanation.
Why has ESG become such a hot topic?
One explanation is the continuous talk in media about environment and global warming. many people do also like to consider themself as supporting a better future so why not show it by investing in an ESG friendly or even better an ESG investing fund or ETF. Apparently, institutions have also started to invest in these vehicles to show that they support the view of clean energy. Once money starts pouring in to a specific area it starts showing better then normal returns which in turn pushes more cash from other investments as people see the better then normal returns and follow the heard (simplified picture yet, people have a tendency to put money where it seems to have generated the best return).
Why I am a bit sceptical to ESG?
An example is solar power and solar panels, to produce a solar panel requires a lot f chemicals of which some are toxic to humans (not aware of any solar panel which production phase does not use toxic chemicals). So we can assume that the production may not be optimal from a toxic perspective to humas as well as other animals, then we have the lifetime of a solar panel which seems to be 25-30 years (probably needs to be maintained during that time). Once its lifetime is over we would most likely recycle most of the panel yet some will usually be lost one way or another. much now depends on where the panels are located, some areas might have bigger constraints on panels and reduce the lifespan. So solar panels can be of a huge benefit to humanity given that is is sunny enough to generate energy and they are produced in a way that limits constraints on environment.
This was now limited only to solar power, there is still wind and water which has been left out.
Is solar, wind or water based generated power better to coal? Yes, most likely yes in every way. Coal does cause a lot of pollution even with good filters to limit the impact. What I am mostly criticizing is the usage of chemicals in "green energy", in order for things to last we usually use a lot of toxic chemicals and this is why I do not like the whole hype. You might have a different opinion and that is good, we just need to ensure that from the start till the end everything is made better and more sustainable than before.This also related to usage of chemicals (note that I do own shares in BASF AS which is a huge chemical producer, I do however have the confidence that BASF will adapt in the long run).
My short ESG investment history
Link to the iShares ETF, iShares Global Clean Energy UCITS ETF
Here is an example of my short ESG (specifically ESG related) investment, all values in euros except returns in percentage and amount of shares bought and sold in numbers. S you can see in les then one year the total return before tax including dividends was 37,90% and capital gains was 36,82%. This considering that World indexes by July had not made any all-time highs. In October we were closing in on all-time highs and seeing really high market values.
iShares Global Clean Energy UCITS ETF details per Jan 5th 2021
P/E-ratio 42,44
Distribution yield 0,44%
Number of Holdings 30
P/B- ratio 4,87
Ongoing charges 0,65% per annum (yearly)
Distributions yes, semi-annual (every 6 months)
Benchmark Index S&P Global Clean Energy Index
At the moment my personal opinion is that the ETF ratios are really high, yes the potential for clean energy is huge and will be significant at some point especially in India and China. Will prefer to invest in more moderately valued ETFs, Funds and companies then this option as technology speeds ahead at a fast paste.
If you have any experience from ESG investing and have spotted any discrepancies or seen that everything works well, please comment. If you have any ETFs or funds you see as better to the iShares I had it would be nice the read.
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